How did ObamaCare screw up the GDP report?

posted at 2:01 pm on June 26, 2014 by Ed Morrissey

Yesterday’s cliff dive of an economic-growth report from the BEA had a lot of people scratching their heads over the last 24 hours. How exactly did the BEA start with an advance estimate of 0.1% annualized GDP growth in Q1 to a final estimate of -2.9%, a full three points of difference? The Wall Street Journal’s Eric Morath and Louise Radnofsky explain that the BEA bought into the Obama administration model of ObamaCare, and just assumed that the enrollment figures for Medicaid and private insurance on the exchanges meant that a deluge of spending would follow. Instead, the actual numbers turned out to be significantly more sour:

The revision in the health-care category was the largest in recent memory, said Nicole Mayerhauser, an official that oversees GDP statistics at the Commerce Department’sBureau of Economic Analysis. …

For the first two estimates of any quarter’s GDP, the Commerce Department doesn’t have direct figures on health-care output. Instead it uses wage and employment data to make estimates. Sometimes government economists consider other measures to augment their approximations.

Initially, they considered Medicaid benefit figures and the number of Americans enrolling in coverage made available under the new health-care law. That data showed an increase in Medicaid outlays and that millions of Americans were signing up for healthcare insurance, leading the Commerce Department to forecast an increase for health outlays.

In the initial reading of first-quarter GDP, released in April, the Commerce Department noted this methodology. With more reliable data now available from a Census survey, those early assumptions have essentially been replaced with more reliable figures.

Ms. Mayerhauser said the Commerce Department doesn’t plan to regularly incorporate data related to the Affordable Care Act into its standard methodologies.

In essence, then, the administration’s assumptions about ObamaCare promoting usage turned out to be incorrect, at least in the short term. Daily Beast analyst Daniel Gross warns that ObamaCare seems to be disturbing health care deliveries, if not the rest of the economy:

A month ago, the BEA thought health care spending rose at a 9.1 percent annual rate in the first quarter. After all, health care spending almost always rises—and quite rapidly. But today, upon further reflection and numbers-crunching, it concluded that health care spending actually fell at a 1.4 percent annual rate. So instead of adding 1.01 percentage points to the GDP growth rate, as the government thought last month, health care wound up sandbagging growth by .16 percent. That differential accounted for about 60 percent of the downward revision.

Why did this happen? It could be that people were hording [sic] medicines and avoiding going to the doctor during the cold weather. Or it could be that many newly insured people delayed going to see the doctor, buying medicine, or having procedures done in January, February ,or March until their health care premiums were fully processed by the state and federal exchanges in April. (Remember, April 1 was the deadline for signups under the Affordable Care Act). It could be that doctors are rationing health care—refusing to schedule appointments. Or it could be that many people are actually paying less for health care because they have insurance—i.e. seeing doctors with a $25 co-pay instead of going to the emergency room.

Clearly, the implementation of Obamacare is disrupting and disturbing the way that health care services are being priced and consumed. In the first quarter, that led to lower spending—either through lower utilization, or lower prices, or some combination thereof.

Well, it’s not lower prices. The final price to the consumer may be lower, but not the actual price set by the insurer. Tax subsidies mask premiums on the exchange by an average 76%, which applies to 87% of all private insurance bought through the exchanges, but it doesn’t lower premiums. Given all of the provider-network restrictions and contractions insurers were forced to take for cost control because of ObamaCare, it’s almost certainly lower utilization.

There is also the question of the economic damage done by ObamaCare in terms of extra tax and regulatory burdens on businesses. The White House shrugged that off after the first estimate in April by claiming increased utilization had saved the economy, a claim that makes the original question even more pressing. In my column today for The Fiscal Times, I note that businesses will have to start making decisions this summer about the employer mandate and how to minimize their exposure to costs and penalties. Those incentives will likely make for more unexpectedly bad GDP reports in the near future:

Get ready for more dampening effects on the economy from Obamacare, too. The Washington Post reminded readers this week that the employer mandates will soon come into force for most businesses, which now have to make decisions on staffing, hours, and benefits for their 2015 budgets. …

Evidence is mounting that the practice [of cutting hours to avoid the mandate] has become widespread even among companies that don’t announce their intentions. When asked about this rational response to incentives, White House economists suggested watching payroll data to see whether distribution of part-time hours remained steady or shifted as the mandate approached, and last year published a study claiming no effect had been seen.

However, the study relied on a method of rounding up that made workers averaging 29.5 hours (which does not qualify as full time for the ACA) to 30 hours (the threshold for full-time designation in the ACA). In reality, the numbers of workers getting 30-34 hours of work a week has dropped 6.4 percent since the end of 2012, while those getting 25-29 hours a week has risen 10.8 percent.

As businesses cut hours and postpone or cancel expansion plans, fewer jobs are created and workers who do have jobs earn less money. That soft labor market also hampers wage growth and has a dampening effect on consumer spending. That’s before the cost of Obamacare hits the workers themselves, with a new report suggesting that the brunt of those costs hit middle-aged women hardest.

The White House can try postponing the employer mandate again, but that’s not easily done. The subsidies now getting paid for the coverage are supposed to come in part from an estimated $150 billion in employer fines for coverage issues. Postponing enforcement another year sinks the program even further into red ink. Even if they do keep the mandate in place, though, that revenue may never come close to the projected level, as employers do whatever they can to avoid penalties — by cutting hours, especially.

This won’t be the last GDP report in the ObamaCare era that has economists scratching their heads over unexpectedly negative impacts.

Blowback

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Spending on health-care services declined at a 1.4% annualized pace in the first quarter, compared to an earlier estimate of a 9.1% increase.

I’m sorry, but if I made estimates like that at my last job before I retired, I would not have been offered any retirement. I would have been fired and quite possibly had civil charges brought against me for fiduciary shenanigans.

Health care services down, health care insurance policies up 47%. Sure lots are paid for by the productive in taxpayer subsidies but still 47% higher. That has to come from somewhere.

Let’s also not forget that businesses actually plan for the future and under Obama, particularly Obama-democrat Care, there are no rules. Diktats and imperial actions can change the field at any time. Add in the lies of lower premiums and keeping your plan and doctor no sane business person would expand or bet on the future….unless you are a big democrat donor.

This all assumes the number of enrollees actually exist. I myself have been automatically signed up by my state 5 times this year. They claim incompetence with there computer system, but what if its an attempt to boost the numbers? If so, it easily explains the lack of healthcare spending for the 5 non existent enrollees.

Gee? You mean when you double the costs of every bodies healthcare insurance, then tack on a $5000 out of pocket deductible before you can access even a dime of said overpriced insurance, people don’t have that $5k (having just given it to the insurance companies) and so elect to go without any actual health care services. But it’s ok! Because at least they now have health insurance. Not food. Not actual health care. But they do now have health insurance.

then tack on a $5000 out of pocket deductible before you can access even a dime of said overpriced insurance, people don’t have that $5k (having just given it to the insurance companies) and so elect to go without any actual health care services.

patches on June 26, 2014 at 2:19 PM

Look for people walking around with homemade bandages, and wooden peglegs. Actually, that sounds like the VA too.

A lot of people are spending more on insurance premiums regardless of whether they have any health issues, and for deductibles when they have to get health care. Does personal healthcare delivery contribute to the GDP? What is the ‘product’? I’m not sure how it would add to GDP in a logical world (but I realize we are talking political economics here, so logic doesn’t have to have a part in the results).

Regardless, thanks to the ACA, many people in the US have less money to spend on discretionary things than they used to, so they don’t buy new cars or furniture, or go on vacations, or replace that old smartphone with a new one, etc.

The economic prognosticators should have seen this coming in 2014, but it did not fit the narrative promoted by the White House, so the real impact of ACA on the average US household was ignored.

Not at all according to the liberal pundits doing damage control last night. This was all about a severe winter due to climate change due to……. you know…… BUSH!!!!!!!!!

Nevermind the massive tax on Americans represented by Obamacare also made its debut during the same period. That’s as coincidental as hard drives crashing on seven key suspects at the IRS all at the same time that Congress started asking for e-mail records.

Using data published by government web sites, compare the following two time periods:
January 3, 1995 – January 3, 2007 (when GOP held majority)
January 3, 2007 – Present (when DEMS have held majority)
(Majority = controlling 2+ out of 3 of the House, Senate, and Presidency)

Average Employment-Population Ratio
1995-2006 GOP Majority: 63.3%
2007-2014 DEM Majority: 59.7%
2009-2014 Obama administration: 58.7%
(Over 11 Million more people would be employed if we had GOP-level employment right now)

BEA bought into the Obama administration model of ObamaCare, and just assumed that the enrollment figures for Medicaid and private insurance on the exchanges meant that a deluge of spending would follow.

There’s an old saying hereabouts in Virginia: When you assume, you make an ass of “u” and me.

A lot of people are spending more on insurance premiums regardless of whether they have any health issues, and for deductibles when they have to get health care. Does personal healthcare delivery contribute to the GDP? What is the ‘product’? I’m not sure how it would add to GDP in a logical world (but I realize we are talking political economics here, so logic doesn’t have to have a part in the results).

Regardless, thanks to the ACA, many people in the US have less money to spend on discretionary things than they used to, so they don’t buy new cars or furniture, or go on vacations, or replace that old smartphone with a new one, etc.

The economic prognosticators should have seen this coming in 2014, but it did not fit the narrative promoted by the White House, so the real impact of ACA on the average US household was ignored.

s1im on June 26, 2014 at 2:29 PM

Both spending on health care and on health insurance do contribute to GDP. The breakdown that gets down specifically to health insurance is only released annually, but increased payments in the larger “financial services and insurance” category contributed +0.13 percentage points to the change in real GDP in the first quarter after contributing +0.30 points to the change in real GDP in the fourth quarter of 2013.

It’s really pretty simple. The money I would have paid in premiums+copays+deductibles to get my shoulder repaired is now, in higher premiums, going to subsidize someone else’s care. No increase in care, just a redistribution of it.

Doctors are not rationing healthcare. They are, however, spending a lot more time in the newly mandated electronic healthcare systems rather than seeing patients, which adds up to longer hours and fewer patients seen per day. Properly speaking, though, that was not required by Obamacare, but by the Stimulus law that required everyone to use an electronic health care record in a “meaningful” way. The “Meaningful Use” guidelines are, of course, set by government bureaucrats.

Still, the bigger impact comes not from the extra burden on doctors, but from the new insurance packages having such high deductibles that patients are avoiding going to a doctor if they don’t have to.

I remain amazed that Obama supporters actually believe those numbers, along with the employment numbers in ITguy’s 2:33 post, can somehow yield a 17K stock market.

rogerb on June 26, 2014 at 2:41 PM

Considering that most of Wall Street, contrary to popular myth, is dominated by Rats wholly dependent on continued Quantitative Easing, and bad economic news helps ensure said continuance, you shouldn’t be amazed.

Still, the bigger impact comes not from the extra burden on doctors, but from the new insurance packages having such high deductibles that patients are avoiding going to a doctor if they don’t have to.

There Goes the Neighborhood on June 26, 2014 at 2:42 PM

I believe you nailed the soon-to-be-ongoing problem. After all, what good is insurance if it doesn’t pay for anything (other than Fluke’s birth control as that has a $0 deductible/co-pay)?

I remain amazed that Obama supporters actually believe those numbers, along with the employment numbers in ITguy’s 2:33 post, can somehow yield a 17K stock market.

rogerb on June 26, 2014 at 2:41 PM

Considering that most of Wall Street, contrary to popular myth, is dominated by Rats wholly dependent on continued Quantitative Easing, and bad economic news helps ensure said continuance, you shouldn’t be amazed.

Steve Eggleston on June 26, 2014 at 2:48 PM

Steve, do you think that soon after Republicans take control, the Wall Street Rats will make the market tank, and blame the Republicans?

There is little new spending by the “newly insured” under ACA because they are all essentially cash pay. If the ACA insurance is canceled for nonpayment of premiums, any unpaid insurance claims are voided, regardless of when the service was performed. The insurance companies wait several months to pay these claims (they pay standard insurance claims within a few weeks) and if the policy is cancelled the physician is left holding the bag. So most offices around here require payment up front from ACA policy holders, and if there is a refund due it will be paid after the entire claim is processed and paid.

Isn’t this the same metric that figures in consumer debt (including student loans) as positive growth?

We didn’t have Obummercare when the recession started 6-7 years ago, and none of the things that caused it have ever been addressed or really fixed…not that I think they really can short of waving a magic wand.

We’re being systematically robbed (and have been for ages) of real commodities in exchange for fiat currency that can technically evaporate at any moment. They keep the farm, we get to keep the greenback wallpaper and constantly depreciating possessions.

We’ve deluded ourselves into thinking that “boom and bust” cycles are normal. I’m not buying that. We were sold on that idea so that the players (and yeah, that could be us-anyone can buy stocks and bonds) could blow up a new bubble and cash in (hopefully) before it bursts…and then start it all over again.

How many panics, recessions and depressions do we have to go through? A truly stable economic system would not see such wild swings barring natural disasters of a momentous scale.

Lastly, the idea that inflation and price increases for products that see no higher demand is also delusional. There is nothing positive for us about a weakening currency.

I read an analysis by Richard Rahn about the affect on duration and severity of recession of the FED. His statistics show that both duration and severity are much worse since we have had the FED protecting us.